Dustin Holmberg shares answers to some important homebuyer questions you should ask yourself when purchasing a house.
The last few years have been a roller coaster, and the home buying landscape has gone through several undulations during that time. When the pandemic began, we were all scared to go into a home! No one wanted to walk into a new place because we didn’t know how or when people caught the virus, and no one wanted to let anyone into their home for fear of them bringing the virus.
As the hysteria faded and scientists gained more understanding of how the virus transmitted, we entered a new phase. Everyone was stuck at home! You had more money, both because of the stimulus payments and not spending on the things you were used to, so we turned to either home projects or to upgrading our current home. The gold rush was on!
Accommodative interest rates kept borrowing cheap, and as demand rose, so too did the prices. We saw historic appreciation across the market until we all realized that maybe the engine was going a little too fast. Inflation overstayed its welcome, and the Fed started raising interest rates, which cooled demand. Our culture shifted seemingly overnight, and now the most common homebuyer questions I get sound as though people are scared of buying a house right now.
That begs an interesting question, though. Why would someone be scared of buying a home? I believe that comes from some basic mistakes we make in our decision-making process. We don’t know where to start, so we tend to ask the wrong questions. Even the best answers to the wrong questions don’t provide the kind of guidance we need. If our questions are the issue, then discussing some good questions to ask when buying a home as well as some things to consider should help ease our collective brains. Let’s dig in!
Why would someone want to buy a home?
Most people associate buying a home with making an investment. I discussed this topic in more depth in an accompanying article, so for time’s sake, let’s just answer quickly and say that a home is an asset rather than an investment. Turns out, you can live in a home (not so easy to live in a 401k)! Now I know that I haven’t told you anything you didn’t already know, but seriously… you can live there! Since we all need somewhere to live, it’s a serendipitous collision of circumstance. When we peel away the pressure of investment, then figuring out where you want to live is a cool thing!
Isn’t buying a better option than renting?
If you have to pay to live somewhere, then why not pay to own it someday? That’s the conclusion most people come to. Turns out that sometimes that’s not the best option for everyone. When you own something, you also own the maintenance of that thing. When something breaks, you are responsible to fix it (or just leave it until it becomes an issue). You have the right to choose, but you also have the responsibility for repair. Anyone who owns a pet surely understands this conundrum. My dog is a great companion, but it really gets expensive when he hurts himself. Sometimes, it’s more cost effective to rent. Some people just don’t want the stress associated with fixing things. It’s all about choices, but asking the question helps you understand your motivations.
How do I know when the right time to buy a home is?
It turns out that timing is really important to buying a home, but not in the sense that you’re thinking. Buying a home is expensive. You have your down payment, escrows, reports, moving expenses, and don’t even get me started on that new La-Z-Boy for the living room!
At the same time, selling a home is expensive. Did you know that it costs on average 8-10% of the value of the home when selling it? That means that if you’re not planning on being there more than 2-3 years, you should really think about the timing. You would need your home to appreciate more than 10% in the first 2 years just to break even, and while that is certainly possible, it is not guaranteed. Buying a home is a playing the long game as opposed to a searching for a short-term gain. If you want a guaranteed return, invest your down payment into a certificate.
When should I buy a home?
When thinking of questions to ask when buying a home, let's talk about the timing that I teased you about earlier. It’s hard for me to write any article about finance without talking about supply and demand. We romanticize the idea of being able to buy at the valley and sell at the peak of the market, but that’s exactly what that is… a fantasy! We realize the peak and the valley months (or maybe years) after we’ve gone through it, so if you’re waiting for the right time, you will be waiting for a while.
Instead, focus on how much you are paying for the home. The one thing that people universally overlook when buying a home is that you are locking in the monthly payment on that property for the next 30 years give or take. When you think about it in those terms, you are locking in your cost of housing for the long-term, so understanding how good or bad of a deal you get takes on a different context. In a market where values are rapidly increasing, you’ll end up paying more for certain options than others. When the market is more stable, you have more time to search for the best option to meet your needs. It’s always about supply and demand!
The next item to consider is how soon you need to decide. Financial decisions are always best when you have time, but sometimes a time-crunch is unavoidable! Take the time to list out what is important to you. Figure out what your must-haves are as well as those things that aren’t as important to you. Making a list really helps provide clarity and keeps you from falling in love with the furniture in the space (my favorite analogy for the things that aren’t part of the deal).
When making financial decisions, it’s always important to take your time. When you feel overwhelmed by things, stop to ask yourself why you feel the way that you do, and be honest with yourself. Buying a home should be fun! Getting good answers to your questions helps, but finding the right questions to ask when buying a home is the most important ingredient.